less than 20 percent thought the recession had ended in 2001 although
the NBER eventually dated November 2001 as the end of the recession.^13
Once again, economists have been unable to call the turning point of the
business cycle until well after the date has passed.CONCLUSION
Stock values are based on corporate earnings, and the business cycle is a
prime determinant of changes in these earnings. The gains of being able
to predict the turning points of the economic cycle are enormous, yet
doing so with any precision has eluded economists of all persuasions.
Despite the growing body of economic statistics, predictions are not get-
ting much better over time.
The worst course an investor can take is to follow the prevailing
sentiment about economic activity. The reason is that it will lead the in-
vestor to buy at high prices when times are good and everyone is opti-
mistic, and sell at the low when the recession nears its trough and
pessimism prevails.
The lessons to investors are clear. Beating the stock market by ana-
lyzing real economic activity requires a degree of prescience that fore-
casters do not yet have. Turning points are rarely identified until several
months after the peak or trough has been reached. By then, it is far too
late to act in the market.CHAPTER 12 Stocks and the Business Cycle 219
(^13) Blue Chip Economic Indicators, February 10, 2002, p. 16.